California, one of the most unaffordable states to live in in the country, is taking a fairly significant step to make itself more livable for working people. The newly sworn-in Governor Gavin Newsom, in his proposal for the state budget, intends to more than double the California Earned Income Tax, which returns up to $2,879 to families and individuals working at or below the full-time minimum wage threshold.
The CalEITC was introduced in 2015 and supplements the federal EITC, which is widely considered one of the most effective, national poverty-prevention measures in the U.S. The Federal EITC grants annual payments to families making as much as $45,802, but the CalEITC is targeted specifically at helping the lowest-income residents of the state (families making less than $22,000 annually). Last year, the CalEITC was funded with $400 million annually, and reached around 2 million families. Rebranded as the Working Families Tax Credit, Newsom’s proposal will raise the program funding to $1 billion. This will enable more assistance to go to the very low income families the CalEITC already serves, and bring an additional 400,000 low-income families into the program. In an economically unequal state like California, this expansion of assistance for people across a wider range of the poverty spectrum is crucial.
Newsom’s proposal has largely been met with support as it prepares to move to the state legislature for approval. But an aspect that’s very exciting to Adam Ruben, campaigns director for the Economic Security Project (ESP)–a nonprofit focused on creating equity through cash-assistance and basic income programs–is how the tax credit will be delivered. Instead of the money reaching families as a lump sum once a year as part of their tax refund, Newsom’s budget calls for the payments to be delivered in smaller chunks monthly.
“The typical pattern with the EITC is that you get deeper and deeper into debt over the course of a year,” Ruben says, “and then you use the big payment at tax time to try to pay everything off and break even.” Giving people the option to receive the credit on a monthly basis will help people plan their budgets on a more immediate basis. Benefits like food stamps are delivered monthly, so families receiving both will have a more accurate sense of their financial landscape. And in months when a household finds itself on more stable financial footing, they might be able to put some of the tax credit money aside in savings. “What we’re seeing is the idea of the importance of a steady drumbeat of financial security throughout the year,” Ruben says.
Newsom is by no means the first politician to propose modernizing the EITC through switching to a monthly payment structure. Bonnie Watson Coleman, a representative from New Jersey, proposed doing so in the EITC Modernization Act of 2018, a bill she introduced last year. And Senator Kamala Harris’s LIFT The Middle Class Act, introduced last year as a rebuttal to Donald Trump’s tax bill, proposes the same thing. The idea of steady, monthly cash payments also lies at the foundation of basic income, the concept of lifting the poverty floor by equipping people with regular, no-strings-attached stipends.
But Ruben cautions against comparing Newsom’s budget proposal and bills like Harris’s and Coleman’s too closely to a true basic income. In its purest form, basic income is universal, delivered to all people, regardless of employment or socioeconomic status. The legislative and budget proposals we’re seeing around EITC expansion are targeted specifically at people who work but still struggle to make ends meet. “It is recognizing that for many people who work, it’s not enough,” Ruben says. Even raising the minimum wage to $15 an hour–as states like California are in the process of doing–often does not provide enough income to people. Often, they can’t secure enough shifts, or the cost of childcare adds an extra burden. Especially in California, exorbitant housing costs keep that necessity out of reach.
Newsom’s budget proposal aims to tackle these challenges. It will raise the household income threshold to over $30,000 (or what someone would take home working full-time at the projected $15 per hour minimum wage) to include more families. And the expanded funding will grant parents with children under six an additional $500 per year. That may not seem like a lot, Ruben says, but in focus groups run by the ESP over the past year, one woman said anyone who looks at that money and responds in that way “has never had to choose between paying rent and buying food.”
It’s important to emphasize, Ruben says, that Newsom’s budget proposal is just scratching the surface of what the state could do in terms of delivering more money to low-income working people. Specifics on how the Working Families Tax Credit will be funded, for instance, are still scant, but the state will mostly rely on adjustments to corporate taxes to raise the extra $600 million. Harris, in her Senate bill, proposes raising the funds for monthly cash assistance payments by raising taxes on wealthy Americans (instead of rolling them back, as Trump has done).
Newsom’s budget doesn’t touch personal income taxes as a funding source for tax credit expansion, but it certainly could in the future, Ruben says. In a report released in December 2018 calling for an expansion of the CalEITC, the ESP says the income threshold for the credit should be raised to $75,000 to truly acknowledge income disparity and unaffordability in the state. California would need to raise significantly more funding for the program to reach that goal, Ruben says, and it’s not inconceivable the state could turn to personal incomes of the wealthy to make it happen. “In every poll we’ve conducted on the subject, around 80% of people support the idea that the wealthiest people should pay more to even out the economy,” Ruben says.
California’s new budget is setting the state up to lead, both in terms of how cash assistance is prioritized, and how it’s delivered, and Ruben says at least 10 other states are exploring similar EITC modernization efforts.